The past week in the housing market was relatively quiet, with no groundbreaking economic news. However, a slight dip in mortgage rates, now near their highest levels since May, has brought some relief to potential homebuyers. Despite these elevated rates, recent data indicates strong momentum in the housing market, with notable gains in home sales.
Manufacturing Sector: A Mixed Signal
One of the week’s key economic reports came from the Institute of Supply Management (ISM), which showed a modest improvement in the national manufacturing index. The index rose to 49.3, slightly surpassing expectations, but it remains below the critical threshold of 50 for the ninth consecutive month. A reading under 50 signals contraction in the manufacturing sector, reinforcing ongoing struggles within this part of the economy.
A Surge in Home Sales
In a significant highlight, sales of existing homes in November surged by 5% from October and were 6% higher than the same period last year. The median price for existing homes reached $406,100, a 5% increase year-over-year.
However, the inventory situation remains challenging. With just a 3.8-month supply of homes nationally, the market is far from the balanced 6-month supply ideal for healthy buyer-seller dynamics. That said, there’s some optimism: inventories are 18% higher than they were a year ago, offering hope for more balanced conditions in the months ahead.
New home sales also demonstrated impressive gains, increasing by 6% from October and 9% year-over-year. These figures underscore the demand for housing despite higher borrowing costs.
Mortgage Applications Hint at Future Challenges
While the November sales data is encouraging, the outlook for home sales could face headwinds due to persistently high mortgage rates. This concern is reflected in the latest Mortgage Bankers Association (MBA) data.
- Applications for refinancing dropped sharply by 36% from the previous week, though they were still 10% higher than a year ago.
- Purchase applications also showed weakness, falling by 13% week-over-week and declining by 17% compared to the same time last year.
These figures suggest that higher rates may begin to dampen the momentum in home sales as affordability becomes a growing concern for buyers.
What’s Next?
Investors and analysts will closely watch upcoming economic reports for signs of market direction. Key events include:
- Monday: The ISM national services sector index, which will provide insights into the broader economy beyond manufacturing.
- Wednesday: The release of detailed minutes from the December 18 Federal Reserve meeting, offering a glimpse into policymakers’ views on inflation and interest rates.
- Friday: The highly anticipated Employment Report, which covers job creation, unemployment rates, and wage inflation—metrics critical to understanding the overall economic landscape.
Final Thoughts
The housing market has shown resilience, with strong home sales despite higher mortgage rates and constrained inventories. However, signs of strain, such as declining mortgage applications, suggest that sustained growth could become increasingly challenging without a shift in borrowing costs or economic conditions.
For now, the market remains a mix of optimism and caution, with potential buyers and sellers watching closely as the year unfolds.
